FORM 10-Q/A
Amendment No. 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 28, 2003
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Commission File Number: 0-23400
DT INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 44-0537828
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
907 West Fifth Street, Dayton, Ohio 45407
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(Address of principal executive offices) (Zip Code)
(937) 586-5600
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act.)
Yes No X
-------- --------
The number of shares of Common Stock, $0.01 par value, of the registrant
outstanding as of February 9, 2004 was 23,601,732.
EXPLANATORY NOTE
The Company is filing this Quarterly Report on Form 10-Q/A (Amendment No. 1) for
the fiscal quarter ended December 28, 2003 to reflect an increase in the
goodwill impairment charge recorded at its Packaging Systems segment. In the
Company's Quarterly Report on Form 10-Q originally filed with the SEC on
February 11, 2004, the Company did not separately test goodwill for impairment
for the Packaging Systems segment that it classified as held for sale.
Subsequent to the date the initial Form 10-Q was filed, the Company determined
that Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" required this test. As a result of this process, the Company
determined it was required to write-off the remainder of its Packaging Systems
segment goodwill of $5.7 million. Therefore, as reflected and/or discussed in
Items 1 and 2 of this Form 10-Q/A:
o the non-cash charge for goodwill impairment recorded in the
period ended December 28, 2003 increased by $5.7 million to
$11.6 million and is included in the "Loss from discontinued
operations before benefit for income taxes - Packaging
Systems" on the Company's Consolidated Statement of
Operations;
o total assets related to discontinued operations has decreased
from $30.7 million to $25.1 million as of December 28, 2003;
and
o the loss from discontinued operations before benefit for
income taxes has increased from $9.255 million to $14.936
million and from $9.245 million to $14.926 million for the
three and six months ended December 28, 2003, respectively.
The above noted changes had no impact on previously reported results from the
Company's continuing operations. Please note that, as described in Footnote 2 of
Notes to Consolidated Financial Statements and in the General Overview section
of Management's Discussion and Analysis of Financial Condition and Results of
Operations of this Form 10-Q/A, the Company completed the sale of substantially
all of the assets of the Packaging Systems segment on March 8, 2004 and
anticipates it will record a gain on disposal of discontinued operations (no
taxes are required to be recorded) of $5.5 million in the fiscal quarter ending
March 28, 2004 as a result of this transaction. In addition, see Item 4 of this
Form 10-Q/A for a discussion of the Company's internal controls in light of the
Company's above-described application of SFAS No. 142.
Please note that, except as described in Item 4 of this Form 10-Q/A and with
respect to completion of the sale of the Packaging Systems segment as described
in Footnote 2 of Notes to Consolidated Financial Statements and in the General
Overview section of Management's Discussion and Analysis of Financial Condition
and Results of Operations of this Form 10-Q/A, this report continues to speak as
of the date of the original filing, and the Company has not updated the
disclosures in this report to speak as of a later date. You are urged to read
the Company's Current Report on Form 8-K dated March 11, 2004 for a discussion
of certain events that have taken place since the original filing date of this
report.
DT INDUSTRIES, INC.
INDEX
PAGE 1
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Page
Number
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at December 28, 2003
(Restated) and June 29, 2003 2
Consolidated Statement of Operations for the Three and
Six months ended December 28, 2003 (Restated)
and December 29, 2002 3
Consolidated Statement of Changes in Stockholders'
Equity for the Six months ended December 28,
2003 (Restated) 4
Consolidated Statement of Cash Flows for the Six
months ended December 28, 2003 (Restated) and
December 29, 2002 5
Notes to Consolidated Financial Statements 6-18
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19-30
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 30
Item 4. Controls and Procedures 30
Part II Other Information
Item 1. Legal Proceedings 32
Item 3. Defaults upon Senior Securities 32
Item 4. Submission of Matters to Vote of Security Holders 32
Item 6. Exhibits and Reports on Form 8-K 32-33
Signature
DT INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
PAGE 2
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December 28, June 29,
2003 2003
------------- -------------
(Restated)
ASSETS
Current assets:
Cash and cash equivalents $ 1,798 $ 4,912
Accounts receivable, net 26,656 20,531
Costs and estimated earnings in excess of amounts billed on uncompleted
Contracts 28,865 29,187
Inventories, net 10,160 10,375
Prepaid expenses and other 3,533 4,955
Assets of discontinued operations (Note 5) 25,065 43,650
------------- -------------
Total current assets 96,077 113,610
Property, plant and equipment, net 26,434 27,197
Goodwill 63,656 63,817
Other assets, net 5,265 3,881
------------- -------------
$ 190,048 $ 209,889
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Senior secured term and revolving credit facility (Note 6) $ 47,422 $ 39,492
Current portion of other long-term debt 74 45
Accounts payable 14,578 12,457
Customer advances 5,908 7,494
Billings in excess of costs and estimated earnings on uncompleted
contracts 10,267 5,003
Accrued liabilities 23,266 22,740
Liabilities related to discontinued operations (Note 6) 13,606 17,058
------------- -------------
Total current liabilities 115,092 104,318
Long-term debt 51 31
Other long-term liabilities 25,841 24,134
------------- -------------
Total long-term obligations 25,872 24,185
Commitments and contingencies (Note 12)
Company-obligated, mandatorily redeemable convertible
preferred securities of subsidiary DT Capital Trust holding
solely convertible junior subordinated debentures of the Company 37,807 37,005
Stockholders' equity:
Preferred stock, $0.01 par value; 1,500,000 shares authorized; no
shares issued and outstanding -- --
Common stock, $0.01 par value; 100,000,000 shares authorized;
23,601,732 and 23,647,932 shares issued and outstanding at
December 28, 2003 and June 29, 2003, respectively 246 246
Additional paid-in capital 188,060 188,060
Accumulated deficit (133,500) (103,394)
Accumulated other comprehensive (loss) (20,845) (17,836)
Unearned portion of restricted stock (178)
(114)
Less - Treasury stock 1,029,688 and 983,488 shares at December
28, 2003 and June 29, 2003, respectively), at cost (22,570) (22,517)
------------- -------------
Total stockholders' equity 11,277 44,381
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$ 190,048 $ 209,889
============= =============
See accompanying Notes to Consolidated Financial Statements.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 3
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Three months ended Six months ended
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December 28, December 29, December 28, December 29,
2003 2002 2003 2002
------------- ------------- ------------- -------------
(Restated) (Restated)
Net sales $ 40,218 $ 46,696 $ 75,409 $ 102,415
Cost of sales 36,324 40,947 67,586 86,109
------------- ------------- ------------- -------------
Gross profit 3,894 5,749 7,823 16,306
Selling, general and
administrative expenses 8,733 8,928 17,269 18,775
Asset Impairment 423
Restructuring charges (Note 13) 610 1,700 1,630 1,700
------------- ------------- ------------- -------------
Operating (loss) (5,449) (4,879) (11,499) (4,169)
Interest expense, net 1,548 1,204 2,879 2,302
Accrued dividends on Company-
obligated, mandatorily redeemable
convertible preferred securities of
subsidiary DT Capital Trust holding
solely convertible junior subordinated
debentures of the Company 401 401 802 802
------------- ------------- ------------- -------------
Loss from continuing operations
before benefit for income taxes (7,398) (6,484) (15,180) (7,273)
Benefit for income taxes -- -- -- --
------------- ------------- ------------- -------------
Loss from continuing operations (7,398) (6,484) (15,180) (7,273)
Discontinued operations (Note 5):
Loss from discontinued operations,
before benefit for income taxes:
Converting Technologies (3,504) (1,010) (2,832) (1,251)
Packaging Systems (11,432) (598) (12,094) (730)
Benefit for income taxes -- -- -- --
------------- ------------- ------------- -------------
Loss on discontinued operations (14,936) (1,608) (14,926) (1,981)
------------- ------------- ------------- -------------
Net loss $ (22,334) $ (8,092) $ (30,106) $ (9,254)
============= ============= ============= =============
Net loss per common share:
Basic
From continuing operations $ (0.31) $ (0.27) $ (0.64) $ (0.31)
From discontinued operations (0.63) (0.07) (0.63) (0.08)
------------- ------------- ------------- -------------
Net loss $ (0.94) $ (0.34) $ (1.27) $ (0.39)
============= ============= ============= =============
Diluted
From continuing operations $ (0.31) $ (0.27) $ (0.64) $ (0.31)
From discontinued operations (0.63) (0.07) (0.63) (0.08)
------------- ------------- ------------- -------------
Net loss $ (0.94) $ (0.34) $ (1.27) $ (0.39)
============= ============= ============= =============
Weighted average common shares outstanding:
Basic 23,626,239 23,647,932 23,639,659 23,647,932
Diluted 23,626,239 23,647,932 23,639,659 23,647,932
See accompanying Notes to Consolidated Financial Statements.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 28, 2003
(DOLLARS IN THOUSANDS)
(UNAUDITED)
PAGE 4
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Accumulated
Additional other
Common paid-in Accumulated comprehensive Treasury
stock capital deficit loss stock
------------- ------------- ------------- ------------- -------------
(Restated)
Balance, June 29, 2003 $ 246 $ 188,060 $ (103,394) $ (17,836) $ (22,517)
Comprehensive loss:
Net loss (30,106)
Deferred Hedging Gain (Loss) (375)
Foreign currency translation (2,634)
Total comprehensive loss
Amortization of earned portion
of restricted stock
Repurchase of restricted shares (53)
------------- ------------- ------------- ------------- -------------
Balance, December 28, 2003 $ 246 $ 188,060 $ (133,500) $ (20,845) $ (22,570)
============= ============= ============= ============= =============
Unearned
portion of
restricted
stock Total
------------- -------------
(Restated)
Balance, June 29, 2003 $ (178) $ 44,381
Comprehensive loss:
Net loss (30,106)
Deferred Hedging Gain (Loss) (375)
Foreign currency translation (2,634)
-------------
Total comprehensive loss (33,115)
Amortization of earned portion
of restricted stock 64 64
Repurchase of restricted shares (53)
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Balance, December 28, 2003 $ (114) $ 11,277
============= =============
See accompanying Notes to Consolidated Financial Statements.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
PAGE 5
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Six Months Ended
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December 28, December 29,
2003 2002
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(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (30,106) $ (9,254)
Loss from discontinued operations 14,926 1,981
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Loss from continuing operations
(15,180) (7,273)
Adjustments to reconcile loss from continuing operations to net cash provided
(used) by operating activities:
Depreciation 1,399 1,778
Amortization 1,138 1,180
Asset Impairment 423
Deferral of dividends on convertible trust preferred securities 802 802
Deferred taxes (5) (577)
(Increase) decrease in current assets, excluding
the effect of discontinued operations:
Accounts receivable (5,435) 9,748
Costs and earnings in excess of amounts billed on uncompleted contracts 441 (136)
Inventories 514 (3,117)
Prepaid expenses and other 2,020 (844)
Increase (decrease) in current liabilities, excluding the
effect of discontinued operations:
Accounts payable 2,216 (4,625)
Customer advances (1,754) 2,688
Billings in excess of costs and estimated earnings on uncompleted contracts 5,088 (461)
Accrued liabilities and other 363 (4,255)
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Net cash provided (used) by operating activities of continuing operations (7,970) (5,092)
Net cash provided (used) by operating activities of discontinued operations (405) (1,625)
------------- -------------
Net cash provided (used) by operating activities (8,375) (6,717)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets 4 679
Capital expenditures (181) (2,224)
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Net cash provided (used) by investing activities (177) (1,545)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (paydowns) on senior credit facility 5,393 991
Payments on other indebtedness (49) (5,109)
Financing costs paid (175) (306)
Repurchase of Restricted Shares (53) --
------------- -------------
Net cash provided (used) by financing activities 5,116 (4,424)
Effect of exchange rate changes 322 840
------------- -------------
Net increase (decrease) in cash (3,114) (11,846)
Cash and cash equivalents at beginning of period 4,912 18,847
------------- -------------
Cash and cash equivalents at end of period $ 1,798 $ 7,001
============= =============
See accompanying Notes to Consolidated Financial Statements.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 28, 2003
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 6
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1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of DT
Industries, Inc. (DTI or the Company) have been prepared in accordance
with the instructions for Form 10-Q and do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
However, in the opinion of management, the information includes all
adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the results of operations for the periods
presented. Operating results for any quarter are not necessarily
indicative of the results for any other quarter or for the full year.
These statements should be read in conjunction with the consolidated
financial statements and notes to the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the fiscal
year ended June 29, 2003.
2. RESTATEMENT
The Company is filing this Quarterly Report on Form 10-Q/A (Amendment
No. 1) for the fiscal quarter ended December 28, 2003 to reflect an
increase in the goodwill impairment charge recorded at its Packaging
Systems segment. In the Company's Quarterly Report on Form 10-Q
originally filed with the SEC on February 11, 2004, the Company did not
separately test goodwill for impairment for the Packaging Systems
segment that it classified as held for sale. Subsequent to the date the
initial Form 10-Q was filed, the Company determined that Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" required this test. As a result of this process, the Company
determined it was required to write-off the remainder of its Packaging
Systems segment goodwill of $5.7 million, as reflected by:
o the non-cash charge for goodwill impairment recorded in the
period ended December 28, 2003 increased by $5.7 million to
$11.6 million and is included in the "Loss from discontinued
operations before benefit for income taxes - Packaging
Systems" on the Company's Consolidated Statement of
Operations;
o total assets related to discontinued operations has decreased
from $30.7 million to $25.1 million as of December 28, 2003;
and
o the loss from discontinued operations before benefit for
income taxes has increased from $9.255 million to $14.936
million and from $9.245 million to $14.926 million for the
three and six months ended December 28, 2003, respectively.
The above noted changes had no impact on previously reported results
from the Company's continuing operations.
On March 8, 2004, the Company completed the sale of its Packaging
Systems segment. The net proceeds (after expenses) of $10,460 received
by the Company were used to repay its senior bank indebtedness. The
Company anticipates it will record a gain on disposal of discontinued
operations (no taxes are required to be recorded) of $5,500 in the
period ending March 28, 2004 as a result of this transaction.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR PERIOD ENDED DECEMBER 28, 2003
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 7
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3. LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced operating losses in the past several years,
has an accumulated deficit of $133,500 and its operating performance
continues to be adversely impacted by depressed levels of capital
spending in the markets it serves. In addition, the Company is
currently in default on its senior credit facility due to its failure
to make principal payments of approximately $2.7 million due on
December 31, 2003 and violation of a minimum net worth covenant. The
Company has requested a forebearance agreement from its bank group, but
the bank group had neither waived the defaults nor issued forebearance
from accelerating payment. The Company's current senior credit facility
matures on July 2, 2004 and, to date, the bank group has not indicated
its willingness to extend the facility beyond that date. These
circumstances raise substantial doubt about the Company's ability to
continue as a going concern. The Company's lines of credit are
currently overdrawn, it is not able to access any availability under
the senior credit facility and it is operating through the management
of its cash, including efforts to collect customer payments and
delaying payment to vendors, where feasible, to meet its liquidity
needs. The Company's ability to meet its short-term liquidity needs and
debt obligations would be materially adversely affected if the Company
obtains a significant amount of new orders which are not accompanied by
advance payments from the customers.
The Company will be required to replace its existing credit facility on
July 2, 2004 unless its current bank group elects to extend the
facility beyond the maturity date. The Company has had continuing
discussions with other potential lenders who could replace the current
bank group. In addition, in order to generate cash to reduce its level
of indebtedness, the Company has sold the assets of its Converting
Technologies operations (see Note 5) and has signed a letter of intent
to sell the assets of its Packaging Systems segment. While the Company
believes it will be able to identify a new lending source to replace
the current bank group, it may not be able to find new financing on
terms acceptable to the Company or at a level which would provide
acceptable repayment terms to the current bank group, in either case on
a timely basis. If the current bank group is not willing to extend the
credit facility, new financing at acceptable terms is not available or
the Company is not able to generate sufficient cash by selling assets,
the Company will not be able to make the lump sum payment that is due
on July 2, 2004. If sufficient funds to satisfy obligations under the
senior credit facility are not available, the Company will not be able
to continue its operations as currently anticipated and may need to
initiate bankruptcy proceedings in order to continue its operations
with minimal disruption and preserve the value of its assets.
The Company's senior credit facility (see Note 6) matures on July 2,
2004 and borrowings thereunder of $47,422 are presented as current debt
in the accompanying December 28, 2003 consolidated balance sheet.
The Company is required to begin paying quarterly distributions of $626
under its 7.16% convertible preferred securities ("TIDES") on September
30, 2004. The Company may elect to defer future quarterly distribution
through the maturity date of the TIDES, May 31, 2008, provided it makes
the initial distribution on September 30, 2004.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR PERIOD ENDED DECEMBER 28, 2003
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 8
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4. ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
The accounts of the Company's foreign subsidiaries are maintained in
their respective local currencies. The accompanying consolidated
financial statements have been translated and adjusted to reflect U.S.
dollars in accordance with accounting principles generally accepted in
the United States.
STOCK COMPENSATION PLANS
The Company accounts for employee stock options in accordance with
Accounting Principles Board No. 25, "Accounting for Stock Issued to
Employees" (APB 25). Under APB 25, the Company applies the intrinsic
value method of accounting. For employee stock options accounted for
using the intrinsic value method, no compensation expense is recognized
because the options are granted with an exercise price equal to the
market value of the stock on the date of grant. Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123) prescribes the recognition of compensation expense based on
the fair value of options or stock awards determined on the date of
grant. However, SFAS 123 allows companies to continue to apply the
valuation methods set forth in APB 25. For companies that continue to
apply the valuation methods set forth in APB 25, SFAS 123 mandates
certain pro forma disclosures, as amended by Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based Compensation
- Transition and Disclosure", as if the fair value method had been
utilized.
Had compensation costs for the Company's stock incentive plans been
determined based on the fair value of the options on the grant dates
consistent with the methodology prescribed by SFAS 123, the Company's
net loss and net loss per basic and diluted share would have been
increased to the pro forma amounts indicated below. Because future
stock based compensation may be awarded, the pro forma impacts shown
below are not necessarily indicative of the impact in future years.
For the Three Months Ended For the Six Months Ended
-------------------------------- --------------------------------
December December December December
28, 2003 29, 2002 28, 2003 29, 2002
------------- ------------- ------------- -------------
(Restated) (Restated)
Net loss - as reported $ (22,334) $ (8,092) $ (30,106) $ (9,254)
Add: Total stock-based compensation
expense included in net loss - as reported 32 81 64 162
Deduct: Total stock-based compensation
expense determined under fair value
method for all awards (76) (164) (152) (328)
------------- ------------- ------------- -------------
Net loss - pro forma $ (22,378) $ (8,175) $ (30,194) $ (9,420)
============= ============= ============= =============
Loss per basic and diluted share - as reported $ (0.94) $ (0.34) $ (1.27) $ (0.39)
Loss per basic and diluted share - pro forma $ (0.95) $ (0.35) $ (1.28) $ (0.40)
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR PERIOD ENDED DECEMBER 28, 2003
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 9
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GOODWILL
The changes in the carrying amount of goodwill for the six months ended
December 28, 2003 were as follows:
Material Assembly &
Processing Test
segment segment Total
------------- ------------- -------------
Balance as of June 29, 2003 $ 30,946 $ 32,871 $ 63,817
Goodwill impairment charge -- (423) (423)
Foreign currency translation -- (32) (32)
------------- ------------- -------------
Balance as of September 28, 2003 30,946 32,416 63,362
Foreign currency translation -- 294 294
------------- ------------- -------------
Balance as of December 28, 2003 $ 30,946 $ 32,710 $ 63,656
============= ============= =============
5. DISCONTINUED OPERATIONS
On December 16, 2003, the Company entered into an agreement for the
sale of substantially all of the assets of its Converting Technologies
division (included in the Material Processing segment). The Company
also had entered into a non-binding letter of intent to dispose of
substantially all of the assets of its Packaging Systems business
segment. The Company has presented the assets sold or to be sold, the
liabilities assumed or to be assumed by the buyers and the operating
results of these businesses as discontinued operations in these
financial statements.
The sale of the Converting Technologies assets was completed on January
16, 2004. The Company received net proceeds of $6,000 from the sale,
which were used to reduce the Company's indebtedness to its senior
lenders. Under the Converting Technologies asset purchase agreement,
the Company is responsible for any product liability claims made on
equipment sold prior to the asset sale date. The estimated liability
for such claims is recorded in the Company's balance sheet accruals at
December 28, 2003. The Company expected to sell the assets of the
Packaging Systems segment prior to the end of March 2004. See Note 2
for an update regarding completion of this sale.
The assets and liabilities of these business units have been separately
identified in the Company's balance sheets as of December 28, 2003 and
June 29, 2003. The major classes of assets and liabilities of the
discontinued entities are as follows:
December 28, June 29,
2003 2003
------------- -------------
Assets: (Restated)
Accounts receivable (net) $ 6,983 $ 8,468
Inventory (net) 14,388 18,585
Property, Plant and Equipment (net) 2,548 2,845
Goodwill -- 11,500
Other 1,146 2,252
------------- -------------
Assets of Discontinued Operations $ 25,065 $ 43,650
============= =============
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR PERIOD ENDED DECEMBER 28, 2003
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 10
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December 28, June 29,
2003 2003
--------------- ---------------
Liabilities:
Accounts Payable $ 3,585 $ 3,743
Customer Advances 5,043 8,244
Accrued Liabilities 3,211 3,397
Long-Term Debt - Leases 1,519 1,440
Other Liabilities 248 234
--------------- ---------------
Liabilities of Discontinued Operations $ 13,606 $ 17,058
=============== ===============
Summary operating results of the discontinued operations are as
follows:
Three Months Ended Six Months Ended
------------------------------------ ------------------------------------
December 28, December 29, December 28, December 29,
2003 2002 2003 2002
--------------- --------------- --------------- ---------------
(Restated) (Restated)
Net Sales $ 12,471 $ 15,572 $ 24,094 $ 29,295
Gross Profit 3,424 3,428 6,456 6,745
Selling, General &
Administrative Expense 2,129 4,696 4,811 8,046
Interest Expense 350 340 690 680
(Charge) to record Assets at
Fair Market Value (15,881) (15,881)
(Loss) before Benefit for
Income Taxes (14,936) (1,608) (14,926) (1,981)
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR PERIOD ENDED DECEMBER 28, 2003
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 11
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During December 2003, the Company recorded a charge of $15,881, for
goodwill impairment and lower of cost or market adjustments related to
inventory and other assets, to adjust the carrying basis of the assets
of the Converting Technologies division and Packaging Systems segment
to their estimated fair market value, based on indicative offers
received from purchasers or potential purchasers of those assets.
Included in the charge of $15,881 was $3,100 related to the write-down
of inventories at Converting Technologies and $11,600 related to the
impairment of goodwill and $1,200 related to establishing additional
inventory reserves and write-down of other assets at Packaging Systems.
As discussed under Note 2, the goodwill impairment charge at Packaging
Systems was determined under SFAS No. 142 by comparing the implied fair
value of goodwill to the carrying amount of goodwill at the measurement
date. In January 2004, the assets of Converting Technologies were sold,
with the proceeds from the sale approximating the adjusted carrying
basis of the assets.
The interest expense included above is interest on debt that has been
or is expected to be repaid as a result of the disposal transactions,
calculated at the average rate of interest the Company paid on its
revolving bank loans during the applicable periods.
6. FINANCING
As of December 28, 2003 and June 29, 2003, current and long-term debt
consisted of the following:
DECEMBER 28, JUNE 29,
2003 2003
--------------- ---------------
Term and revolving loans under senior secured credit facility:
Term loan $ 5,464 $ 5,996
Revolving loans 41,958 33,496
Other debt 76 125
--------------- ---------------
47,498 39,617
Less - current portion of senior secured credit facility 47,422 39,492
Less - current portions of other debt 45 74
--------------- ---------------
Long-term debt $ 31 $ 51
=============== ===============
The Company is currently in default on its senior credit facility due
to its failure to make principal payments of approximately $2.7 million
due on December 31, 2003 and violation of a minimum net worth covenant.
The Company has requested a forebearance agreement from its bank group,
but the bank group had neither waived the defaults nor issued
forebearance from accelerating payment. The amended senior credit
facility consists of a $5,464 term loan and a $42,783 revolving loan
($783 represents a restricted line of credit requiring lender consent
to utilize) of which $2,066 is reserved for outstanding letters of
credit. After renewal of a British Pound Sterling bank borrowing on
December 30, 2003, the total of the amount borrowed under the line of
credit ($41,910) plus letters of credit outstanding ($2,066) exceeded
the revolving credit line at that date. As a result, the Company does
not presently have any availability under the senior credit facility
while in default of its credit agreement. In January 2004, the Company
repaid $5.7 million of the amount outstanding under the loan using
proceeds from the sale of Converting Technologies. However, the Company
remains in default of the credit agreement despite this payment.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR PERIOD ENDED DECEMBER 28, 2003
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 12
--------------------------------------------------------------------------------
Significant terms of the senior credit agreement as amended through the
date hereof are:
o $1,500 quarterly scheduled commitment reductions prorated
between the term and revolving loan commitments through June
2004;
o Interest rates for amounts borrowed under the credit facility
are based on Prime Rate plus 4.0% or Eurodollar Rate plus
4.5%. The interest rates increased 1/2 percentage point on
January 31, 2004 as the Company did not reduce the outstanding
revolving loans to $18,000 or less, as required under the
latest amendment to the credit facility. At December 28, 2003,
interest rates on outstanding indebtedness were 8.0% on
domestic borrowings and 8.34% on Pound Sterling borrowings.
o Commitment fees of 0.50% per annum payable quarterly on any
unused portion of the revolving credit facility, an annual
agency fee of $150 and a 1% annual facility fee. An additional
fee of $765,000 is due if the credit facility is not repaid in
full on or before July 2, 2004.
o Borrowings under the credit facility are collateralized by
substantially all of the assets of DTI and its domestic
subsidiaries.
The Company has a $4,094 credit facility available from a foreign
financial institution, secured by certain of its foreign assets. The
facility may be used only to issue bank guarantees, with $3,617 of such
guarantees outstanding at December 28, 2003.
7. COMPANY-OBLIGATED, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF SUBSIDIARY DT CAPITAL TRUST HOLDING SOLELY CONVERTIBLE
JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY (CONVERTIBLE PREFERRED
SECURITIES OR TIDES)
The conversion price of the $35,000 outstanding TIDES (and the Junior
Debentures of the Company held by the DT Capital Trust) is $14.00 per
share, distributions on the TIDES payable are not required to be paid
from April 1, 2002 until July 2, 2004, and the maturity date of the
TIDES is May 31, 2008. Distributions are payable on the TIDES at 7.16%
beginning September 2004 through their maturity date of May 31, 2008.
However, annual dividend expense of $1,604 on the TIDES is being
recorded, reflecting an approximate effective yield of 4.6% over the
life of the TIDES. Distributions accrued during the period through July
2, 2004 are added to the amount outstanding ($37,807 at December 28,
2003).
8. BUSINESS SEGMENTS
In July 2003, the Company announced the closure of its Precision
Assembly segment manufacturing facility in Buffalo Grove, Illinois and
the transfer of its manufacturing operation to the Material Processing
segment's Lebanon, Missouri facilities. An engineering, sales and
service office remains in Illinois to serve Precision Assembly's
customers. Accordingly, the Precision Assembly segment has been
consolidated into the Material Processing segment for financial
reporting purposes and the financial information presented for fiscal
2003 has been reclassified to reflect that the Company currently has
two continuing business segments.
During the quarter ended December 28, 2003, the Company identified its
Packaging Systems segment as discontinued operations and accordingly
eliminated this segment from the following disclosure. In addition,
data of the Converting Technologies business, also identified as a
discontinued operation, has been eliminated from the Material
Processing segment.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR PERIOD ENDED DECEMBER 28, 2003
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 13
--------------------------------------------------------------------------------
Net sales for the Company's reportable segments for its continuing
operations consisted of the following:
Three months ended Six months ended
------------------------------- -------------------------------
December 28, December 29, December 28, December 29,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Material Processing $ 10,873 $ 26,663 $ 25,272 $ 60,731
Assembly & Test 29,345 20,033 50,137 41,684
------------- ------------- ------------- -------------
Consolidated total $ 40,218 $ 46,696 $ 75,409 $ 102,415
============= ============= ============= =============
The reconciliation of segment operating income (loss) to consolidated
loss from continuing operations before income taxes consisted of the
following:
Three months ended Six months ended
-------------------------------- --------------------------------
December 28, December 29, December 28, December 29,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Material Processing $ (3,084) $ (1,002) $ (6,503) $ 2,482
Assembly & Test 918 (2,072) 589 (2,741)
------------- ------------- ------------- -------------
Operating income (loss)
for continuing operations
reportable segments (2,166) (3,074) (5,914) (259)
Corporate/Other (3,283) (1,805) (5,585) (3,910)
Interest expense, net (1,548) (1,204) (2,879) (2,302)
Dividends on Company- obligated,
mandatorily redeemable
convertible preferred
securities of subsidiary
DT Capital Trust holding
solely convertible junior
subordinated debentures of the Company (401) (401) (802) (802)
------------- ------------- ------------- -------------
Loss from continuing
operations before benefit
for income taxes $ (7,398) $ (6,484) $ (15,180) $ (7,273)
============= ============= ============= =============
Total assets for the Company's reportable segments and corporate entity
and assets of the discontinued operations are as follows:
December 28, June 29,
2003 2003
--------------- ---------------
(Restated)
Material Processing $ 63,875 $ 71,881
Assembly & Test 90,136 83,324
Corporate 10,972 11,034
Assets of Discontinued Operations 25,065 43,650
--------------- ---------------
Consolidated total $ 190,048 $ 209,889
=============== ===============
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR PERIOD ENDED DECEMBER 28, 2003
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 14
--------------------------------------------------------------------------------
9. SUPPLEMENTAL BALANCE SHEET INFORMATION
DECEMBER 28, JUNE 29,
2003 2003
------------- -------------
Accounts receivable
Trade receivables $ 27,262 $ 21,166
Less - allowance for doubtful accounts (606) (635)
------------- -------------
$ 26,656 $ 20,531
============= =============
Costs and estimated earnings in excess of amounts billed on
uncompleted contracts
Costs incurred on uncompleted contracts $ 140,843 $ 101,601
Estimated earnings 10,802 12,035
------------- -------------
151,645 113,636
Less - Billings to date (133,047) (89,452)
------------- -------------
$ 18,598 $ 24,184
============= =============
Included in the accompanying balance sheets:
Costs and estimated earnings in excess of amounts billed $ 28,865 $ 29,187
Billings in excess of costs and estimated earnings (10,267) (5,003)
------------- -------------
$ 18,598 $ 24,184
============= =============
Inventories, net
Raw materials $ 4,841 $ 1,741
Work in process 8,327 11,390
Less - inventory reserves (3,008) (2,756)
------------- -------------
$ 10,160 $ 10,375
============= =============
Accrued liabilities
Accrued employee compensation and benefits $ 5,623 $ 6,091
Accrued warranty 1,574 1,712
Restructuring accrual 1,440 1,004
Income tax refund accrual 8,285 8,285
Other 6,344 5,648
------------- -------------
$ 23,266 $ 22,740
============= =============
The Company routinely incurs warranty costs after projects are
installed and completed. The Company reserves for such warranty costs
based on its historical warranty experience and consideration of any
known warranty issues. A summary of the warranty reserves for the three
and six months is as follows:
For the Three Months Ended For the Six Months Ended
------------------------------ ------------------------------
December December December December
28, 2003 29, 2002 28, 2003 29, 2002
------------- ------------- ------------- -------------
Beginning $ 1,790 $ 2,346 $ 1,712 $ 2,720
Expenses 412 330 865 464
Charges (628) (724) (1,003) (1,232)
------------- ------------- ------------- -------------
Ending $ 1,574 $ 1,952 $ 1,574 $ 1,952
============= ============= ============= =============
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR PERIOD ENDED DECEMBER 28, 2003
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 15
--------------------------------------------------------------------------------
10. CONTRACT COSTS
Included in Costs and Estimated Earnings in Excess of Amounts Billed on
Uncompleted Contract (CIE) and in Raw Materials Inventory is $5.9
million of costs incurred to manufacture equipment to produce
biodegradable food packaging products. Netted against the costs in CIE
is a payment of $3.3 million from a customer under a contract to
purchase this equipment, which contract was subsequently cancelled by
the customer (see Note 11). The Company has filed a claim for in excess
of $6.4 million of cancellation charges on this contract.
Subsequent to the above contract cancellation, the Company signed an
agreement with another customer to manufacture equipment to produce a
product similar to that noted above. The Company expects to use a
significant portion of the CIE and inventory noted above to manufacture
this equipment. The current customer contract requires the equipment to
satisfy certain production specifications before the customer will take
delivery of the equipment and further production specifications before
the customer will pay for the equipment. In addition, the equipment
must produce commercially saleable product for the customer, which
includes products at a rate, quality and cost allowing the customer to
sell the products into its marketplace. If the equipment does not meet
all of these criteria, the customer may reject the equipment and cancel
the contract with no obligation to the Company. The Company has not yet
met these criteria and does not anticipate being able to achieve these
criteria within the timeframe required under the current customer
contract. However, the Company has requested an extension of time from
the customer to achieve the specified production criteria and is
optimistic that the customer will grant such an extension. The Company
believes that it will be able to attain the production criteria under
the present contract.
At December 28, 2003, the Company was carrying $2.6 million of net CIE
and Inventory in its accounts. If the Company is unable to meet all of
the aforementioned production criteria/specifications under the current
customer contract, it will likely have to take impairment against a
portion of all of the carrying costs of the equipment.
11. ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB issued a revision to FASB Statement No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits" that revises employers' disclosures about pension plans and
other postretirement benefit plans. It does not change the measurement
or recognition of those plans required by FASB Statements No. 87,
Employers' Accounting for Pensions, No. 88, Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, and No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. This Statement retains the
disclosure requirements contained in FASB Statement No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits, which it
replaces. It requires additional disclosures to those in the original
FAS 132 about the assets, obligations, cash flows, and net periodic
benefit cost of defined benefit pension plans and other defined benefit
postretirement plans. The required information should be provided
separately for pension plans and for other postretirement benefit
plans. The provisions of FAS 132 remain in effect until the provisions
of this Statement are adopted. This Statement is effective for
financial statements with fiscal years ending after December 15, 2003,
except that disclosure of information about foreign plans required by
this Statement is effective for fiscal years ending after June 15,
2004. The interim-period disclosures required by this Statement are
effective for interim periods beginning after December 15, 2003.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR PERIOD ENDED DECEMBER 28, 2003
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 16
--------------------------------------------------------------------------------
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities," which addresses the
reporting and consolidation of variable interest entities as they
relate to a business enterprise. This interpretation incorporates and
supersedes the guidance set forth in ARB No. 51, "Consolidated
Financial Statements." It requires the consolidation of variable
interests into the financial statements of a business enterprise if
that enterprise holds a controlling financial interest via other means
than the traditional voting majority. The provisions of FIN 46 are
effective immediately for variable interest entities created after
January 31, 2003 and thereafter. In December 2003, the FASB issued
FIN46R, a revision to the previously issued FIN46, which defers the
implementation date. The effective date for FIN46R is the end of the
first interim or annual period subsequent to March 15, 2004, which is
the third quarter of fiscal 2004 for the Company. Pursuant to FIN 46R,
the Company's wholly-owned consolidated subsidiary trust (the "Trust")
will be required to be deconsolidated. The Company, would, however
maintain a liability to the Trust relative to the debentures of the
Company held by the Trust. The Company has not created any new variable
interest entities since January 31, 2003.
In May 2003, the FASB issued FASB Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities
and Equity." This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity and requires that an
issuer classify a financial instrument that is within its scope as a
liability. Certain provisions of this statement that are applicable to
the Company have been indefinitely deferred.
12. COMMITMENTS AND CONTINGENCIES
The staff of the Securities and Exchange Commission (the "Commission")
is conducting an investigation of the accounting practices at the
Company's Kalish and Sencorp subsidiaries that led to the restatements
of its consolidated financial statements for fiscal years 1997, 1998
and 1999 and the first three quarters of fiscal 2000, as well as the
issues at the Company's AMI subsidiary that led to the accounting
adjustments to the Company's previously reported audited consolidated
financial results for the fiscal years ended June 24, 2001, June 25,
2000 and June 27, 1999, and to the Company's previously reported
unaudited consolidated financial results for the first three fiscal
quarters of 2002. The Company is cooperating fully with the Commission
in connection with its investigation.
In November 1998, pursuant to the agreement by which the Company
acquired Kalish, Mr. Graham L. Lewis, a former executive officer and
director of DTI, received an additional payment based on Kalish's
earnings for each of the three years after the closing. As a result of
the prior restatement due to accounting practices at Kalish, the
Company believes that the additional payment should not have been made.
During fiscal 2001, we commenced legal action against Mr. Lewis in
Superior Court, Civil Division in Montreal, Quebec to recover this
payment and certain bonuses paid to Mr. Lewis. Mr. Lewis has
counter-sued for wrongful termination and is seeking to recover
monetary damages, including severance, loss of future income, emotional
distress and harm to reputation, equal to $2.8 million Canadian
dollars. There has been little discovery in these actions to date.
Management believes that the Company's suit against Mr. Lewis has
merit. Management further believes that Mr. Lewis' counter-suit is
without merit. The Company intends to pursue vigorously its claims
against Mr. Lewis and defend against his counter-suit.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR PERIOD ENDED DECEMBER 28, 2003
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 17
--------------------------------------------------------------------------------
In July 2003, Green Packaging SDN BHD and Green Earth Packaging Corp.
(collectively, "Green Packaging") filed a complaint against Detroit
Tool & Engineering Company ("DTE"), a wholly-owned subsidiary of DTI,
in the Superior Court of the State of California, County of Santa
Barbara. As causes of action, the complaint alleges breach of contract,
misappropriation of trade secrets, breach of confidence, unfair
business practices, conversion and similar claims arising out of a
purchase order pursuant to which DTE was to manufacture for Green
Packaging four lines of equipment for the purpose of producing
biodegradable food packaging using technology and processes licensed by
Green Packaging from Earthshell Corporation. In its complaint, Green
Packaging seeks damages "believed to be in excess of $3.3 million,"
punitive damages and injunctive relief. Prior to the filing of the
complaint, Green Packaging had notified DTE that it was canceling its
purchase order for the equipment, and DTE had invoiced Green Packaging
for cancellation charges in excess of $6.4 million, which has not been
paid, nor has it been recognized in the Company's financial statements.
DTE filed a motion to quash service of the summons and complaint for
lack of personal jurisdiction. Rather than responding to the motion, on
September 29, 2003, Green Packaging amended its complaint and added DTI
as a defendant in that action. The causes of action in the amended
complaint are the same as those asserted in the original complaint,
with additional claims made for breach of guarantee and breach of an
additional agreement. The Company and DTE have filed a motion to quash
service of the summons and amended complaint for lack of personal
jurisdiction. The motion is noticed to be heard on April 22, 2004. In
addition, the Company intends to vigorously defend Green Packaging's
action and to vigorously pursue its claim again Green Packaging for the
above-referenced cancellation charges.
Product liability claims are asserted against the Company from time to
time for various injuries alleged to have resulted from defects in the
manufacture and/or design of its products. At December 28, 2003, there
were seven such claims either pending or that may be asserted against
the Company. The Company does not believe that the resolution of these
claims, either individually or in the aggregate, will have a material
adverse effect on its financial condition, results of operations or
cash flow. Product liability claims are covered by the Company's
comprehensive general liability insurance policies, subject to certain
deductible amounts. The Company has established reserves for these
deductible amounts, which it believes to be adequate based on its
previous claims experience. However, there can be no assurance that
resolution of product liability claims in the future will not have a
material adverse effect on the Company's financial condition, results
of operations or cash flow.
The Company is from time to time subject to claims and suits arising in
the ordinary course of business. Although the ultimate disposition of
such proceedings is not presently determinable, management does not
believe that the ultimate resolution of these matters will have a
material adverse effect on the Company's financial condition, results
of operations or cash flows. The Company maintains comprehensive
general liability insurance that it believes to be adequate its
business.
13. RESTRUCTURING
As outlined in its Annual Report on Form 10-K for the fiscal year ended
June 29, 2003, during fiscal 2003, 2002 and 2001, the Company took
several actions in connection with a plan to restructure its business
operations.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR PERIOD ENDED DECEMBER 28, 2003
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 18
--------------------------------------------------------------------------------
In July 2003, the Company announced the decision to transfer its
manufacturing operations in Buffalo Grove, Illinois of the Precision
Assembly segment to its Lebanon, Missouri manufacturing facilities as
part of the Material Processing segment. Accordingly, the Precision
Assembly segment has been consolidated into the Material Processing
segment for financial reporting purposes. Due to the transfer of these
operations, the Company recorded a restructuring charge of $1,230 in
the first six months of fiscal 2004 ($210 in the three months ended
December 28, 2003), including severance costs of $1,173 for the
termination of 69 employees.
The restructuring reserve at June 29, 2003 pertains to two vacant
facilities and one facility sublet at approximately 75% of the current
lease rates. The reserve represents lease payments on the vacant
facilities through June 2004 and the partial lease payments on the
sublet facility through the life of the sublease (2013). The Company's
Packaging Systems segment leases a now vacant manufacturing facility,
the liability for which the Company does not expect to be assumed by a
buyer of the business. Although the Company continues to actively seek
a tenant for the facility, it has not, to date, been able to locate
such a tenant. Therefore, the Company provided an additional $400 in
its reserve for future lease costs on closed facilities in December
2003. The $400 reserve represents the discounted value of the excess of
the Company's rental payments for the remaining lease term over current
market rental payments for a similar property.
A summary of the restructuring reserve for the six months and three
months ended December 28, 2003 is as follows:
FOR THE SIX MONTHS ENDED
-----------------------------------------------------------------------
JUNE 29, CHARGED TO CASH DECEMBER 28,
2003 EXPENSE PAYMENTS 2003
--------------- --------------- --------------- ---------------
Severance costs $ -- $ 1,173 $ (820) $ 353
Future lease costs on closed facilities 1,004 400 (317) 1,087
Other -- 57 (57) --
--------------- --------------- --------------- ---------------
$ 1,004 $ 1,630 $ (1,194) $ 1,440
=============== =============== =============== ===============
FOR THE THREE MONTHS ENDED
-----------------------------------------------------------------------
SEPTEMBER 28, CHARGED TO CASH DECEMBER 28,
2003 EXPENSE PAYMENTS 2003
--------------- --------------- --------------- ---------------
Severance costs $ 669 $ 178 $ (494) $ 353
Future lease costs on closed facilities 772 400 (85) 1,087
Other -- 32 (32) --
--------------- --------------- --------------- ---------------
$ 1,441 $ 610 $ (611) $ 1,440
=============== =============== =============== ===============
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 19
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Certain information contained in this Quarterly Report, including, without
limitation, the information appearing under the captions "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources," includes forward-looking statements made
pursuant to the safe harbor provisions of Section 21E of the Securities Exchange
Act of 1934, as amended. These statements comprising all statements herein which
are not historical reflect our current expectations and projections about our
future results, performance, liquidity, financial condition, prospects and
opportunities and are based upon information currently available to us and our
interpretation of what we believe to be significant factors affecting our
businesses, including many assumptions regarding future events. References to
the words "opportunities", "growth potential", "objectives", "goals", "will",
"anticipate", "believe", "intend", "estimate", "expect", "should", and similar
expressions used herein indicate such forward-looking statements. Our actual
results, performance, liquidity, financial condition, prospects and
opportunities could differ materially from those expressed in, or implied by,
these forward-looking statements as a result of various risks, uncertainties and
other factors, including the amount and availability of, and our ability to
comply with restrictions and covenants relating to, our indebtedness under our
senior credit facility, our ability to effectively manage our cash to meet our
liquidity needs and debt reduction obligations through July 2, 2004, continued
restrained capital spending in industries or markets served, delays or
cancellations of customer orders, the loss of a key customer, our ability to
refinance or further extend our senior credit facility in order to meet our
liquidity needs and continue as a going concern after July 2, 2004, our ability
to achieve anticipated cost savings from our corporate restructuring and cost
reduction initiatives, our ability to consummate the sale of our Packaging
Systems business segment on a timely basis, our ability to continue upgrading
and modifying our financial, information and management systems and controls to
manage our operations on an integrated basis and report our results, delays in
shipping dates of products, significant cost overruns on projects, customer
demand for new products and applications, significant pre-tax charges, including
for goodwill impairment, the write-down of assets, warranty-related expenses and
restructuring charges, foreign currency exchange rate fluctuations, changes in
interest rates, increased inflation and collectibility of past due customer
receivables. See "Business - Risks Related to Our Business" in the Company's
Annual Report on Form 10-K for the fiscal year ended June 29, 2003 for a
description of these and other risks, uncertainties and factors.
You should not place undue reliance on any forward-looking statements. Except as
expressly required by the federal securities laws, we undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events, changed circumstances or any other reason.
The Company is filing this Quarterly Report on Form 10-Q/A (Amendment No. 1) for
the fiscal quarter ended December 28, 2003 to reflect an increase in the
goodwill impairment charge recorded at its Packaging Systems segment. In the
Company's Quarterly Report on Form 10-Q originally filed with the SEC on
February 11, 2004, the Company did not separately test goodwill for impairment
for the Packaging Systems segment that it classified as held for sale.
Subsequent to the date the initial Form 10-Q was filed, the Company determined
that Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" required this test. As a result of this process, the Company
determined it was required to write-off the remainder of its Packaging Systems
segment goodwill of $5.7 million. Therefore, as reflected and/or discussed in
Items 1 and 2 of this Form 10-Q/A:
o the non-cash charge for goodwill impairment recorded in the
period ended December 28, 2003 increased by $5.7 million to
$11.6 million and is included in the "Loss from discontinued
operations before benefit for income taxes - Packaging
Systems" on the Company's Consolidated Statement of
Operations;
o total assets related to discontinued operations has decreased
from $30.7 million to $25.1 million as of December 28, 2003;
and
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 20
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o the loss from discontinued operations before benefit for
income taxes has increased from $9.255 million to $14.936
million and from $9.245 million to $14.926 million for the
three and six months ended December 28, 2003, respectively.
The above noted changes had no impact on previously reported results from the
Company's continuing operations.
GENERAL OVERVIEW
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of DT Industries, Inc.
(DTI or the Company) for the three months and six months ended December 28, 2003
compared to the three months and six months ended December 29, 2002. This
discussion should be read in conjunction with the consolidated financial
statements and notes to the audited consolidated financial statements included
in the Company's Annual Report on Form 10-K for the fiscal year ended June 29,
2003 and the unaudited consolidated financial statements and notes thereto
included in this Quarterly Report on Form 10-Q/A.
The Company has experienced operating losses in the past several years, have an
accumulated deficit of $133.5 million and our operating performance continues to
be impacted by depressed levels of capital spending in the markets we serve. The
Company is currently in default on its senior credit facility due to its failure
to make principal payments of approximately $2.7 million due on December 31,
2003 and violation of a minimum net worth covenant. While the Company has
requested a forebearance agreement from its bank group, the bank group had
neither waived the defaults nor issued forebearance from accelerating payment.
As discussed below under "Liquidity and Capital Resources", these circumstances
raise substantial doubt about the Company's ability to continue as a going
concern.
Almost all of our net sales are derived from the sale and installation of
equipment and systems primarily under fixed-price contracts. We also derive net
sales from the sale of spare and replacement parts and servicing installed
equipment and systems. We recognize revenue under the percentage of completion
method or upon delivery and acceptance in accordance with SEC Staff Accounting
Bulletin 104 (SAB 104).
We principally utilize the percentage of completion method of accounting to
recognize revenues and related costs for the sale and installation of equipment
and systems pursuant to customer contracts. These contracts are typically
engineering-driven design and build contracts of automated production equipment
and systems used to manufacture, test or package a variety of industrial and
consumer products. These contracts are generally for large dollar amounts and
require a significant amount of labor hours with durations ranging from three
months to over a year. Under the percentage of completion method, revenues and
related costs are measured based on the ratio of engineering and manufacturing
labor hours incurred to date compared to total estimated engineering and
manufacturing labor hours. Any revisions in the estimated total costs of the
contracts during the course of the work are reflected when the facts that
require the revisions become known.
For those contracts accounted for in accordance with SAB 104, we recognize
revenue upon shipment (FOB shipping point). We utilize this method of revenue
recognition for products produced in a standard manufacturing operation whereby
the product is built according to pre-existing bills of materials, with some
customization occurring. These contracts are typically of shorter duration (one
to three months) and have smaller contract values. The revenue recognition for
these products follows the terms of the contracts, which call for transfer of
title at time of shipment after factory acceptance tests with the customer. If
installation of the product is included in the contracts, revenue for the
installation portion of the contract is recognized when installation is
complete.
Costs and related expenses to manufacture products, primarily labor, materials
and overhead, are recorded as costs of sales when the related revenue is
recognized. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 21
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Selling, general and administrative expenses primarily consist of salary and
wages for employees, research and development costs, sales commissions,
marketing and professional expenses.
In July 2003, we announced the closure of our Precision Assembly segment
manufacturing facility in Buffalo Grove, Illinois and the transfer of our
manufacturing operation to the Material Processing segment's Lebanon, Missouri
facilities. An engineering, sales and service office remains in Illinois to
serve Precision Assembly's customers. Accordingly, the Precision Assembly
segment has been consolidated into the Material Processing segment for financial
reporting purposes and the financial information presented for fiscal 2003 has
been restated.
On December 16, 2003, the Company entered into an agreement for the sale of
substantially all of the assets of its Converting Technologies division
(included in the Material Processing segment). The Company also had entered into
a non-binding letter of intent to dispose of substantially all of the assets of
its Packaging Systems business segment. The Company has presented the assets
sold or to be sold, the liabilities assumed or to be assumed by the buyers and
the operating results of these businesses as discontinued operations in its
financial statements.
The sale of the Converting Technologies assets was completed on January 16,
2004. The Company received net proceeds of $5.7 million from the sale, which
were used to reduce the Company's indebtedness to its senior lenders. Under the
Converting Technologies asset purchase agreement, the Company is responsible for
any product liability claims made on equipment sold prior to the asset sale
date. The estimate liability for such claims is recorded in the Company's
balance sheet accruals at December 28, 2003. On March 8, 2004, the Company
completed the sale of its Packaging Systems segment. The net proceeds (after
expenses) of $10,460 received by the Company were used to repay its senior bank
indebtedness. The Company anticipates it will record a gain on disposal of
discontinued operations (no taxes are required to be recorded) of $5,500 in the
period ending March 28, 2004 as a result of this transaction.
Both the Packaging Systems segment and the Converting Technologies business,
previously included in the Material Processing segment, have been eliminated
from the following disclosure since they are being treated as discontinued
operations in the Company's financial statements.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
consolidated net sales represented by certain items reflected in the Company's
consolidated statement of operations. The data presented below was derived from
our unaudited consolidated financial statements included in this Quarterly
Report.
Three months ended Six months ended
------------------------------- -------------------------------
December 28, December 29, December 28, December 29,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 90.3 87.7 89.6 84.1
------------- ------------- ------------- -------------
Gross profit 9.7 12.3 10.4 15.9
Selling, general and administrative expenses
21.7 19.1 23.5 18.3
Restructuring charge 1.5 3.6 2.1 1.7
------------- ------------- ------------- -------------
Operating (loss) (13.5)% (10.4)% (15.2)% (4.1)%
============= ============= ============= =============
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 22
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THREE MONTHS ENDED DECEMBER 28, 2003
COMPARED TO THREE MONTHS ENDED DECEMBER 29, 2002
Consolidated net sales for the three months ended December 28, 2003 were $40.2
million, a decrease of $6.5 million, or 13.9%, from $46.7 million for the three
months ended December 29, 2002. Net sales by continuing operations business
segment were as follows (in millions):
Three Months Ended
---------------------------------
December 28, December 29, Increase
2003 2002 (Decrease)
--------------- --------------- ---------------
Material Processing $ 10.9 $ 26.7 $ (15.8)
Assembly & Test 29.3 20.0 9.3
--------------- --------------- ---------------
$ 40.2 $ 46.7 $ (6.5)
=============== =============== ===============
Material Processing segment net sales decreased $15.8 million, or 59.2%, to
$10.9 million for the three months ended December 28, 2003 from $26.7 million
for the three months ended December 29, 2002. The decrease was primarily due to
the decrease in sales to our key electronics customer. Sales to this customer
for the three months ended December 28, 2003 were $3.5 million, down $9.9
million or 73.9%, from the comparable three months of fiscal 2003. The decrease
in sales can be attributed to the completion of several capital spending
programs with this customer being recognized in fiscal 2003 and not being
replaced by other orders from this customer or other customers. In July 2003, we
announced the decision to transfer the manufacturing operations in Buffalo
Grove, Illinois to Lebanon, Missouri as part of the Material Processing segment.
As a result of this consolidation, we have consolidated the Precision Assembly
segment into the Material Processing segment for financial reporting purposes
beginning in fiscal 2003. The decision to transfer manufacturing operations in
Buffalo Grove was based on the outlook for future electronics projects and
excess capacity issues. We expect to see continued softness in our core
electronics market throughout fiscal 2004. The segment's other markets also
remain depressed. For example, sales to the appliance industry were down
approximately $4.1 million, or 88.8%, for the three months ended December 28,
2003. We are currently working on the process and equipment development for
Earthshell's biodegradable foam laminate packaging equipment, with expectations
of delivering the first machine during the fourth quarter of fiscal 2004. We are
not recognizing revenue on this project until we receive customer acceptance of
the equipment. The initial orders for this equipment were cancelled by Green
Packaging during fiscal 2003 and we have since contracted to sell a majority of
the Green Packaging inventory to another customer and expect to recover the $2.6
million of net value on our balance sheet at December 28, 2003. See, however,
Note 9 to the consolidated financial statements for a description of issues
related to this customer contract.
Assembly & Test segment net sales increased $9.3 million, or 46.5%, to $29.3
million for the three months ended December 28, 2003 from $20.0 million for the
three months ended December 29, 2002. Our Assembly & Test segment primarily
serves the automotive market. The increase in the segment's sales was across the
North American and European operations and can be attributed to the timing of
project revenue recognition on a few large projects.
Gross profit decreased $1.9 million, or 32.2%, to $3.9 million for the three
months ended December 28, 2003 from $5.8 million for the three months ended
December 29, 2002. The decrease in gross profit reflects the effect of the $6.5
million decrease in net sales. Our gross margin decreased to 9.7% in fiscal 2004
from 12.3% in fiscal 2003. The lower gross margins resulted from higher than
planned costs incurred on projects and fixed manufacturing costs being allocated
over a lower revenue base.
Selling, general and administrative (SG&A) expenses were $8.7 million for the
three months ended December 28, 2003, a decrease of $0.2 million, or 2.2%, from
the $8.9 million for the three months ended December 29, 2002. The decrease is
primarily attributable to the cost reduction program that we implemented in
fiscal 2003, which has achieved savings of $0.7 million a month beginning in
April 2003. The program included the discontinuance of 401-K matching and
discretionary contributions and salary
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 23
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and wage reductions of 5% to 10% across several divisions and our corporate
office. These savings were substantially offset by the $1.5 million increase in
corporate expenses, primarily pertaining to increased directors and officers
insurance and legal and professional fees associated with the senior credit
facility.
A restructuring charge of $0.6 million was recorded during the three months
ended December 29, 2003. The charge related primarily to severance costs
associated with the transfer of manufacturing in Buffalo Grove, Illinois to
Lebanon, Missouri and a reserve recorded for future lease costs on a now vacant
facility in England. (See Note 12.)
Our operating loss increased $0.5 million to a loss of $5.4 million for the
three months ended December 28, 2003 compared to a loss of $4.9 million for the
three months ended December 29, 2002.
Material Processing segment operating loss increased $2.1 million to a loss of
$3.1 million for the three months ended December 28, 2003 from a loss of $1.0
million for the three months ended December 29, 2002. Operating margin for the
Material Processing segment was a loss of 28.4% in the second quarter of fiscal
2004 versus a loss of 3.8% in the second quarter of fiscal 2003. As noted above,
the drop in sales resulted from the segment's core electronics market where the
segment has historically achieved better profit performance. The segment
incurred approximately $0.2 million in costs related to closing the Buffalo
Grove, Illinois manufacturing facility and relocating equipment. The remainder
of the decrease in operating margin can be attributed to project cost overruns
and lower absorption of manufacturing overhead costs.
The Assembly & Test segment achieved operating income of $0.9 million for the
three months ended December 28, 2003 compared to a loss of $2.1 million for the
three months December 29, 2002. Operating margin for the Assembly & Test segment
was 3.1% in the second quarter of fiscal 2004 versus a loss of 10.3% in the
second quarter of fiscal 2003. The improvement in operating performance is a
combination of better project performance, the improved absorption of
manufacturing overhead costs from the increased revenues and cost reductions.
Corporate head office operating costs were $3.3 million for the three months
ended December 28, 2003 versus $1.8 million for the three months ended December
29, 2002. The increase was primarily a result of increased directors and
officer's insurance premiums and legal and professional fees associated with our
senior credit facility, partially offset by the cost cutting programs we
implemented.
Interest expense attributed to continuing operations increased $0.3 million, or
28.5%, to $1.5 million for the three months ended December 28, 2003 from $1.2
million for the three months ended December 29, 2002. The increase reflects the
1/2 point increase in interest rates charged on the senior credit facility,
increased supplemental bank fees pertaining to bank amendments and an increase
in the amortization of deferred financing fees. Dividends on our trust preferred
securities were $0.4 million for the three months in fiscal 2004 and fiscal
2003. Annual dividend expense of $1.6 million on the TIDES is being recorded,
reflecting an approximate effective yield of 4.6% over the life of the TIDES.
No income tax benefit has been recorded for the three months ended December 28,
2003, or for the prior quarter despite book losses. Based on the uncertainty of
future taxable income, we have not recorded any tax benefit for book losses.
Also, we have established valuation allowances against all of our United States
and United Kingdom deferred tax assets.
Included in discontinued operations for the three months ended December 28, 2003
is a $3.5 million loss from operations of the Converting Technologies division
and a $11.4 million loss from operations of the Packaging Systems segment. The
losses include write-downs of the net assets to fair market value of $3.1
million on the Converting Technologies division and of $12.8 million on the
Packaging Systems segment.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 24
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SIX MONTHS ENDED DECEMBER 28, 2003
COMPARED TO SIX MONTHS ENDED DECEMBER 29, 2002
Consolidated net sales for the six months ended December 28, 2003 were $75.4
million, a decrease of $27.0 million, or 26.4%, from $102.4 million for the six
months ended December 29, 2002.
Net sales by segment were as follows (in millions):
Six Months Ended
---------------------------------------------
December 28, December 29, Increase
2003 2002 (Decrease)
------------- ------------- -------------
Material Processing $ 25.3 $ 60.7 $ (35.4)
Assembly & Test 50.1 41.7 8.4
------------- ------------- -------------
Total $ 75.4 $ 102.4 $ (27.0)
============= ============= =============
The decrease in Material Processing segment sales primarily reflects a $28.8
million decrease in sales to our key electronics customer and a $6.2 million
decrease in sales to the appliance market. The Material Processing segment was
not able to replace sales to these customers with new or repeat customers.
The Assembly & Test segment, which primarily serves the automotive, truck and
heavy equipment market, has experienced market softness over an extended period.
Results for the current year include revenue recognition on several large
automotive projects for which we are currently uncertain that these revenue
levels will be achieved in future quarters. Our automotive markets remain very
competitive and price sensitive.
Gross profit decreased by $8.5 million, or 52.0%, to $7.8 million for the six
months ended December 28, 2003 versus $16.3 million for the six months ended
December 29, 2002. The gross margin decreased to 10.4% for the six months of
fiscal 2004 from 15.9% for the six months of fiscal 2003, primarily reflecting
issues within the Material Processing segment, including project cost overruns
on several projects and the impact of reduced volumes and under-absorption of
overhead costs. The decrease in gross margin for the Material Processing segment
was also due to process and equipment development costs for Earthshell's
biodegradable foam laminate packaging equipment and the negative impact on
profitability from announcing the shutdown of manufacturing in Buffalo Grove,
Illinois.
Selling, general and administrative (SG&A) expenses were $17.3 million for the
six months ended December 28, 2003, a decrease of $1.5 million, or 8.0%,
compared to $18.8 million for the six months ended December 29, 2002. The
decrease is primarily attributable to the cost reduction program that we
implemented in fiscal 2003, which achieved savings of $1.0 million a month
beginning in April 2003. The program included the discontinuance of 401-K
matching and discretionary contributions and salary and wage reductions of 5% to
10% across several divisions and our corporate office. These decreases were
offset by increases in directors and officers insurance and lender's legal and
professional fees. SG&A expenses as a percentage of consolidated net sales
increased to 23.5% for the six months of fiscal 2004 from 18.3% for the prior
year period, reflecting the above items and the lower sales volume.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 25
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A restructuring charge of $1.6 million was recorded during the six months ended
December 28, 2003. The charge related primarily to severance costs associated
with the transfer of manufacturing in Buffalo Grove, Illinois to Lebanon,
Missouri and to a reserve recorded for future lease costs on a now vacant
facility in England. Included in the operating results for the six months ended
December 29, 2002 was a $1.7 million restructuring charge related to the closure
of the Company's Erie, Pennsylvania facility, part of the Company's Material
Processing segment.
Research and development spending, part of SG&A, was $0.6 million for the first
six months of fiscal 2004, down from $1.4 million in the comparable prior year
period. The decrease resulted from the introduction of four new products in the
prior year period and the reduction in all discretionary spending in the current
fiscal year to conserve cash.
An operating loss of $11.5 million was incurred for the six months ended
December 28, 2003 versus an operating loss of $4.2 million for the six months
ended December 29, 2002. Operating margin decreased to a loss of 15.2% in the
current year versus 4.1% in the prior year. The following discusses the
operating income/loss variances from the prior year comparable period.
Material Processing segment operating income decreased $9.0 million to a loss of
$6.5 million for the six months ended December 28, 2003 compared to operating
income of $2.5 million generated in the prior period. Operating margin decreased
to a loss of 25.7% in the current period compared to income of 4.1% in the prior
year. The segment's operating income and margins were impacted by the 58.4% drop
in revenues, primarily revenues with customers providing better profitability.
The change in product mix away from repeat customers and duplicate systems and
the impact of lower volumes on the absorption of manufacturing overhead costs
has primarily driven the lower operating margins. The segment is currently
working on a few low margin and loss projects. Also, the segment continues to
incur costs on developing Earthshell's biodegradable foam laminate packaging
equipment, although not recognizing any profitability on this project. The
segment incurred approximately $1.2 million in costs related to closing the
Buffalo Grove, Illinois manufacturing facility and relocating equipment.
Assembly & Test segment operating income increased $3.3 million, or 121%, to
$0.6 million for the six months ended December 29, 2003 compared to a loss of
$2.7 million for the six months ended December 29, 2002. Operating margin
increased to income of 1.2% in the current period compared to a loss of 6.6% in
the prior year period. Assembly & Test segment sales were up 20.3% and operating
expenses were down resulting in favorable leverage on costs in the current
period. Operating margins also improved from better project performance, with
the prior year period being low due to a few low margin and loss projects.
The corporate head office operating loss increased $1.7 million to a loss of
$5.6 million for the six months ended December 28, 2003 from a loss of $3.9
million for the prior period. The increase was primarily a result of increased
directors and officers insurance premiums and lender's legal and professional
fees, partially offset by the cost cutting programs we implemented.
Interest expense increased $0.6 million to $3.6 million for the six months ended
December 28, 2003 versus $3.0 million for the six months ended December 29,
2002. The increase reflects the 1/2 point increase in interest rates charged on
the senior credit facility, increased supplemental bank fees pertaining to bank
amendments and an increase in the amortization of deferred financing fees.
Dividends on our trust preferred securities were $0.8 million for the six months
in fiscal 2004 and fiscal 2003. Dividend expense of $1.6 million is recorded
annually on the convertible trust preferred securities, reflecting an
approximate effective yield of 4.6% over the life of the securities, after
considering the period from April 1, 2002 until July 2, 2004 when distributions
are not required to be paid.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 26
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Included in discontinued operations for the six months ended December 28, 2003
is an approximate $2.8 million loss from operations of the Converting
Technologies division and an approximate $12.1 million loss from operations of
the Packaging Systems division. The losses include the write-down of the net
assets to fair market value of $3.1 million on the Converting Technologies
division and $12.8 million on the Packaging Systems division.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced operating losses in the past several years, has an
accumulated deficit of $133.5 million and its operating performance continues to
be adversely impacted by depressed levels of capital spending in the markets it
serves. In addition, the Company is currently in default on its senior credit
facility due to its failure to make principal payments of approximately $2.7
million due on December 31, 2003 and violation of a minimum net worth covenant.
The Company has requested a forebearance agreement from its bank group, but the
bank group had neither waived the defaults nor issued forebearance from
accelerating payment. The Company's current senior credit facility matures on
July 2, 2004 and, to date, the bank group has not indicated its willingness to
extend the facility beyond that date. These circumstances raise substantial
doubt about the Company's ability to continue as a going concern. The Company's
lines of credit are currently overdrawn, it is not able to access any
availability under the senior credit facility and it is operating through the
management of its cash, including efforts to collect customer payments and
delaying payment to vendors, where feasible, to meet its liquidity needs. The
Company's ability to meet its short-term liquidity needs and debt obligations
would be materially adversely affected if the Company obtains a significant
amount of new orders which are not accompanied by advance payments from the
customers.
The Company will be required to replace its existing credit facility on July 2,
2004 unless its current bank group elects to extend the facility beyond the
maturity date. The Company has had continuing discussions with other potential
lenders who could replace the current bank group. In addition, in order to
generate cash to reduce its level of indebtedness, the Company has sold the
assets of its Converting Technologies operations (see Note 5 to the financial
statements) and has signed a non-binding letter of intent to sell the assets of
its Packaging Systems segment. While the Company believes it will be able to
identify a new lending source to replace the current bank group, it may not be
able to find new financing on terms acceptable to the Company or at a level
which would provide acceptable repayment terms to the current bank group, in
either case on a timely basis. If the current bank group is not willing to
extend the credit facility, new financing at acceptable terms is not available
or the Company is not able to generate sufficient cash by selling assets, the
Company will not be able to make the lump sum payment that is due on July 2,
2004. If sufficient funds to satisfy obligations under the senior credit
facility are not available, the Company will not be able to continue its
operations as currently anticipated and may need to initiate bankruptcy
proceedings in order to continue its operations with minimal disruption and
preserve the value of its assets.
Cash Flow Activity
Net cash used by operating activities of continuing operations was $8.7 million
for the six months ended December 28, 2003, compared with $5.8 million for the
six months ended December 29, 2002. For the six months ended December 28, 2003,
a decrease in working capital for the continuing operations provided $3.5
million of operating cash flow as compared to a use of cash of $1.0 million for
the six months ended December 29, 2002. The discontinued operations of the
Converting Technologies and Packaging Systems divisions used $0.4 million of
cash for operating activities for the six months ended December 28, 2003
compared to a use of $1.6 million for the six months ended December 29, 2002.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 27
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The decrease in working capital of $3.5 million for the six months ended
December 28, 2003 can be primarily attributed to the reduction in net sales of
$27.0 million, or 26.4%, from the six months of fiscal 2003. Other factors
contributing to lower working capital include higher billings to date on
percentage of completion projects, resulting from our focus on cash management
and obtaining better payment terms and also from the predominance of projects
being at a later stage in the project life cycle. Because of the default on our
credit facility, we have been managing cash by deferring payments to vendors.
This has also contributed to the lower working capital.
Our working capital balances can fluctuate significantly between periods as a
result of the significant costs incurred on individual contracts, the relatively
large amounts invoiced and collected for a number of large contracts, and the
amounts and timing of customer advances or progress payments associated with
certain contracts.
Capital expenditures for the six months ended December 28, 2003 were $0.2
million, reflecting the Company's conservation of cash. Management anticipates
capital expenditures for fiscal 2004 to be approximately $1.0 million,
consisting of recurring replacement or refurbishment of machinery and equipment.
However, until the Company is able to generate cash from its operations, or have
availability under its lines of credit, capital expenditures will likely we
limited to only those amounts which are essential to continue operations. In the
next six months, the Company does not anticipate a critical need for capital
expenditures.
During the six months ended December 28, 2003, we borrowed $5.4 million under
our revolving line of credit to fund cash used by operating activities, capital
expenditures and $0.2 million in financing costs.
Senior Credit Facility and Trust Preferred Securities
We use our borrowings under our senior credit facility to fund working capital
requirements, capital expenditures and finance charges. Borrowings under our
senior credit facility are secured by substantially all of our domestic assets.
As of December 28, 2003, our senior credit facility consisted of a $42.8 million
revolving credit facility (including a $0.8 million restricted line, which can
be used only with approval of a majority of the lenders) and a $5.5 million term
credit facility. As of December 28, 2003, under the revolving line of credit,
$42.4 million was outstanding (including $2.1 million in outstanding letters of
credit) and total borrowing availability was $0.4 million (restricted). We had
approximately $1.8 million in cash as of December 28, 2003.
We were required to make a scheduled quarterly commitment reduction of $1.5
million on December 31, 2003 and lower our outstanding borrowings on December
30, 2003 upon the renewal of our Sterling pound note at a new exchange rate
(approximately $1.6 million). We failed to make these mandatory principal
payments as required and are currently in default under our senior credit
facility. We have since sold substantially all of the assets of our Converting
Technologies division and used the net proceeds to reduce term debt by $.7
million and revolving debt by $5.0 million (after payment of $.3 million of bank
advisor fees.) Discussions are currently ongoing with our senior lenders to
execute a forbearance agreement.
As a result of our net loss in the second quarter of fiscal 2004, we are in
default of the minimum net worth covenants of our senior credit facility as of
December 28, 2003.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND ITEMS 3 AND 4
PAGE 28
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At December 28, 2003, interest rates were 8.0% on outstanding domestic
indebtedness and 8.44% on outstanding Sterling Pound indebtedness. Interest
rates at December 28, 2003 were based on the prime rate plus 4.0% or the
Eurodollar rate plus 4.5%. The facility requires commitment fees of 0.50% per
annum payable quarterly on any unused portion of the revolving credit facility,
an annual agency fee of $150,000 and a 1% annual facility fee. The annual
facility fee will be forgiven if the debt is paid in full and the credit
facility is cancelled before the annual due dates.
On June 12, 1997, we completed a private placement to several institutional
investors of $70.0 million of 7.16% convertible preferred securities ("TIDES").
The TIDES offering was made by our wholly-owned subsidiary trust, DT Capital
Trust (the "Trust"). The TIDES represent undivided beneficial ownership
interests in the Trust, the sole assets of which are the related aggregate
principal amount of junior subordinated debentures issued by us that the Trust
acquired with the proceeds of the TIDES offering. As originally structured, the
TIDES were convertible at the option of the holders at any time into shares of
our common stock at a conversion price of $38.75 per share. Furthermore, the
TIDES holders were entitled to receive cash distributions at an annual rate of
7.16%, payable quarterly in arrears on the last day of each calendar quarter. In
connection with the September 1999 amendment to our senior credit facility, we
elected to defer distributions on the TIDES for up to five years.
In connection with our financial recapitalization transaction that we completed
on June 20, 2002, we restructured our agreement with the TIDES holders and,
among other things, exchanged half of the outstanding TIDES, plus the deferred
quarterly distributions of $15.1 million on the TIDES, for 6,260,658 shares of
our common stock. We have guaranteed the payment of distributions and payments
on liquidation of the Trust or the redemption of the TIDES. Through this
guarantee, our junior subordinated debentures, the debentures' indenture and the
Trust's declaration of trust, taken together, we have fully, irrevocably and
unconditionally guaranteed all of the Trust's obligations under the TIDES. Thus,
while the TIDES are not included in our liabilities for financial reporting
purposes and instead appear on our consolidated balance sheet between
liabilities and stockholders' equity, they represent obligations of DTI.
The Company is required to begin paying quarterly distributions of $.6 million
under its 7.16% convertible preferred securities ("TIDES") on September 30,
2004. The Company may elect to defer future quarterly distribution through the
maturity date of the TIDES, May 31, 2008, provided it makes the initial
distribution on September 30, 2004.
BACKLOG
The Company's backlog is based upon customer purchase orders that the Company
believes are firm. Backlog and orders by continuing segment for the current and
prior year period are as follows:
Backlog as of Orders for the six months ended
--------------------------------- ---------------------------------
December 28, December 29, December 28, December 29,
2003 2002 2003 2002
--------------- --------------- --------------- ---------------
Material Processing $ 29.0 $ 58.3 $ 27.0 $ 46.7
Assembly & Test 39.5 46.9 43.2 40.4
--------------- --------------- --------------- ---------------
$ 68.5 $ 105.2 $ 70.2 $ 87.1
=============== =============== =============== ===============
The level of backlog at any particular time is not necessarily indicative of our
future operating performance for any particular reporting period because we may
not be able to recognize as sales the orders in our backlog when expected or at
all due to various contingencies, many of which are beyond our control. For
example, many purchase orders are subject to cancellation by the customer upon
notification. Certain orders are also subject to delays in completion and
shipment at the request of the customer. However, our contracts normally provide
for cancellation and/or delay charges that require the customer to reimburse us
for costs actually incurred and a portion of the quoted profit margin on the
project. We believe most of the orders in our backlog as of December 28, 2003
will be recognized as sales during fiscal 2004.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 29
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The Company believes that the level of orders and resulting backlog have been
negatively impacted and may continue to be negatively impacted by the concerns
customers have about the Company's financial condition, including the current
bank covenant violation and payment default and the ability of the Company to
continue its operations as currently anticipated.
Backlog was negatively impacted by the lower order level and by the previously
announced fourth quarter fiscal 2003 contract termination by a customer
purchasing the Company's Earthshell equipment. Although the cancelled order
reduced year end backlog by $12.3 million, the Company received a $5.3 million
purchase order for this equipment from a new customer in the first quarter of
fiscal 2004, which is included in its December 28, 2003 backlog.
We have been expanding our sales efforts in Asia and developing markets because
we expect significant capital equipment purchases to occur in general in these
markets over the remainder of the decade. In September, we received a $3.1
million order at our Assembly & Test operation from a Chinese auto supplier.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB issued a revision to FASB Statement No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" that
revises employers' disclosures about pension plans and other postretirement
benefit plans. It does not change the measurement or recognition of those plans
required by FASB Statements No. 87, Employers' Accounting for Pensions, No. 88,
Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits, and No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions. This Statement retains the
disclosure requirements contained in FASB Statement No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits, which it replaces.
It requires additional disclosures to those in the original FAS 132 about the
assets, obligations, cash flows, and net periodic benefit cost of defined
benefit pension plans and other defined benefit postretirement plans. The
required information should be provided separately for pension plans and for
other postretirement benefit plans. The provisions of FAS 132 remain in effect
until the provisions of this Statement are adopted. This Statement is effective
for financial statements with fiscal years ending after December 15, 2003,
except that disclosure of information about foreign plans required by this
Statement is effective for fiscal years ending after June 15, 2004. The
interim-period disclosures required by this Statement are effective for interim
periods beginning after December 15, 2003.
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities," which addresses the reporting and
consolidation of variable interest entities as they relate to a business
enterprise. This interpretation incorporates and supersedes the guidance set
forth in ARB No. 51, "Consolidated Financial Statements." It requires the
consolidation of variable interests into the financial statements of a business
enterprise if that enterprise holds a controlling financial interest via other
means than the traditional voting majority. The provisions of FIN 46 are
effective immediately for variable interest entities created after January 31,
2003 and thereafter. In December 2003, the FASB issued FIN46R, a revision to the
previously issued FIN46, which defers the implementation date. The effective
date for FIN46R is the end of the first interim or annual period subsequent to
March 15, 2004, which is the third quarter of fiscal 2004 for the Company.
Pursuant to FIN 46R, the Company's wholly-owned consolidated subsidiary trust
(the "Trust") will be required to be deconsolidated. The Company, would, however
maintain a liability to the Trust relative to the debentures of the Company held
by the Trust. The Company has not created any new variable interest entities
since January 31, 2003.
In May 2003, the FASB issued FASB Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity and requires that an issuer classify a financial instrument that is
within its scope as a liability. Certain provisions of this statement that are
applicable to the Company have been indefinitely deferred.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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SEASONALITY AND FLUCTUATIONS IN QUARTERLY RESULTS
In general, the Company's business is not subject to seasonal variations in
demand for its products. However, because orders for certain of the Company's
products can be several million dollars, a relatively limited number of orders
can constitute a meaningful percentage of its revenue in any one quarterly
period. As a result, a relatively small reduction or delay in the number of
orders can have a material impact on the timing of recognition of the Company's
revenues. Almost all of the Company's net sales are derived from fixed price
contracts. Therefore, to the extent that original cost estimates prove to be
inaccurate, profitability from a particular contract may be adversely affected.
Gross margins may vary between comparable periods as a result of the variations
in profitability of contracts for large orders of special machines as well as
product mix between the various types of custom and proprietary equipment
manufactured by the Company. Accordingly, the Company's results of operations
for any particular quarter are not necessarily indicative of results that may be
expected for any subsequent quarter or related fiscal year.
FOREIGN OPERATIONS
Our primary foreign operations are conducted through subsidiaries in the United
Kingdom and Germany. The functional currencies of these subsidiaries are the
currencies native to the specific country in which the subsidiary is located.
SUMMARY DISCLOSURE ABOUT CONTRACTUAL OBLIGATIONS
See the Company's Annual Report on Form 10-K for the fiscal year ended June 29,
2003. There were no significant updates to the disclosure as of December 28,
2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to DTI's exposures to market risk during the
six months ended December 28, 2003 that would require an update to the
disclosures provided in DTI's Form 10-K for the fiscal year ended June 29, 2003.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports we file or submit under the
1934 Act is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to our management, including our President and Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. Management necessarily applies its judgment in
assessing the costs and benefits of such controls and procedures, which, by
their nature, can provide only reasonable assurance regarding management's
control objectives.
We carried out an evaluation pursuant to Exchange Act Rule 13a-15, under the
supervision and with the participation of our management, including our
President and Chief Executive Officer along with our Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the second quarter of fiscal 2004. Based upon the
foregoing, our President and Chief Executive Officer, along with our Chief
Financial Officer, concluded that our disclosure controls and procedures are
effective in timely alerting them to material information relating to us
(including our consolidated subsidiaries) required to be included in our
Exchange Act reports. There has been no change in our internal control over
financial reporting that occurred during the second quarter of fiscal 2004
identified in connection with the evaluation described above that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting. During the first quarter of fiscal 2004, our director
of internal audit and a staff internal auditor left the Company to pursue other
job opportunities. In December 2003, the former controller of the Company's
Precision Assembly segment was named director of internal audit.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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PricewaterhouseCoopers LLP, our independent auditors, after the initial filing
of this Form 10-Q advised us that the combination of adjustments to reflect the
proper application of SFAS No. 142 in calculating goodwill impairment for a
business unit held for sale (as described in this Form 10-Q/A) and the
adjustments made to historical financials statements in our fiscal year 2003
Form 10-K to properly account for our UK pension plan are internal control
deficiencies that collectively constitute a material weakness (as defined by the
American Institute of Certified Public Accountants). Our management and audit
committee are assessing the technical expertise and resources in our accounting
and internal audit areas to address complex accounting issues and will take such
steps as are appropriate to address any deficiencies.
DT INDUSTRIES, INC.
PART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
The Company is involved in legal and regulatory proceedings, as described in
"Part 1, Item 3. Legal Proceedings" of the Company's Annual Report on Form 10-K
for the fiscal year ended June 29, 2003 and in "Note 11 - Commitments and
Contingencies" to the financial statements included in this report. Since the
disclosure in the Company's Annual Report on Form 10-K for the fiscal year ended
June 29, 2003, there have been no material developments in previously reported
legal proceedings other than on September 29, 2003, Green Packaging amended its
complaint and added DTI as a defendant in that action. The causes of action in
the amended complaint are the same as those asserted in the original complaint,
with additional claims made for breach of guarantee and breach of an additional
agreement. The Company and DTE have filed a motion to quash service of the
summons and amended complaint for lack of personal jurisdiction. The motion is
noticed to be heard on April 22, 2004.
In addition to the above-described items, the Company is from time to time
subject to claims and suits arising in the ordinary course of business. Although
the ultimate disposition of such proceedings is not presently determinable,
management does not believe that the ultimate resolution of these matters will
have a material adverse effect on the Company's financial condition, results of
operations or cash flows. The Company maintains comprehensive general liability
insurance that it believes to be adequate for the continued operation of its
business.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" above for a discussion of payment
and covenant defaults under the Company's bank credit facility. The Company has
requested a forebearance agreement from its lenders in connection with such
defaults but, as of the date of this Report on Form 10-Q, such forebearance has
not been obtained.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 11, 2003, the Annual Meeting of the Stockholders of DTI was held, at
which the election of directors and a proposal recommending that the Board
consider rescinding the Company's Shareholders Rights Plan was voted upon.
With respect to the election of Directors, each of the following nominees for
Directors received the number of votes set forth opposite his name:
FOR WITHHELD
---------- ----------
Class I James J. Kerley 4,499,719 9,810,732
(term expires 2006) Charles F. Pollnow 11,400,067 2,910,384
John F. Logan 11,198,837 3,111,614
With respect to the proposal recommending that the Board consider rescinding the
Shareholder Rights Plan, the vote was 11,176,893 for, 1,646,189 against, and
13,009 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
31.1 Certification of Chief Executive Officer Pursuant to
Rule 13a-14(a) under the Securities Exchange
Act of 1934
DT INDUSTRIES, INC.
PART II. OTHER INFORMATION
PAGE 33
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31.2 Certification of Chief Financial Officer Pursuant to
Rule 13a-14(a) under the Securities Exchange
Act of 1934
32 Certification Pursuant to 18 U.S.C. Section 1350 As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K:
On October 22, 2003, a Current Report on Form 8-K was filed,
pursuant to items 5 and 7 thereof, announcing that the Company
had reached an agreement with its lenders to amend its senior
credit facility.
On November 12, 2003, a Current Report on Form 8-K was filed
to report, pursuant to Items 5 and 7 thereof, the release of
the Company's earnings for the three months ended September
28, 2003.
DT INDUSTRIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
DT INDUSTRIES, INC.
Date: March 11, 2004 /s/ John M. Casper
----------------------------------------
(Signature)
John M. Casper
Senior Vice President, Finance and Chief
Financial Officer
(Principal Financial and Accounting
Officer)